Financial Pitfalls Federal Employees Should Avoid

It’s pretty inspiring to be a federal government employee in that you have the power to impact Americans. This realization of the power vested in you motivates you to show up for work every day. A competitive pay package is another reason for the same drive, with an inevitable pay increase for those with solid education credentials and experience.

As a federal employee, you’re entitled to benefits such as healthcare, retirement, and insurance. It can be easy to take financial security for granted as your job is also more secure in comparison to a private employee. This complacency and lack of appreciation or awareness can lead to many pitfalls which can obstruct the smooth sailing of your financial situation.

Aiming To Get Rich Quick

If your life goal is to become a billionaire, then a government job would certainly not make you one. In fact, even the highest positions in government come with a salary cap. Therefore, you need to work out your priorities and choose between a government job or an opportunity which satisfies your priorities.

It’s important to realize that unlike some other professions, your income likely won’t exceed a certain threshold, and this may or may not motivate you. Therefore, establishing clear goals and priorities will help you devise a sound long-term financial plan.

Lacking Emergency Funds

Even though you have higher job security than most, the need for establishing a personal emergency fund cannot be ruled out. In January 2018, there was a dispute between Republicans and Democrats which resulted in a United States government shutdown. The shutdown, which lasted three days, began after a failure to pass legislation to fund government operations and agencies. In scenarios like this, depending on the section of government you work in, your paycheck could be halted until the government operates again.

Furthermore, the government often lays off less-tenured employees, so an emergency fund becomes a necessity for federal employees with less experience.

Optimizing The Benefit Of The Thrift Savings Plan

Your federal equivalent to a general 401(k) comes with a variety of funds in which to invest, which are not available to the general public. This implies that you can opt for more money to be taken from your paycheck and invested as part of the Thrift Savings Plan in following funds for maximum benefit. Thrift essentially works on autopilot, and not taking advantage of this opportunity is equivalent to a financial pitfall. The variety of options offered by the government make it impossible to put all your eggs in one basket, and thus safeguards your interests. Some of the funds to consider are:

  • G Fund – A mutual fund with government-backed securities not available to the public.
  • F Fund – A fixed income index fund which, as of December 2017, yields an interest rate of 3.82%.
  • C Fund – A mutual fund working in conjunction with the stock market. Over time, the value appreciates even if there are a few pitfalls in the short term.
  • S Fund – This option became available to federal employees only 17 years ago, helping to invest in small-cap funds.

Avoid Financial Pitfalls

At MoKan Fed Financial, we understand that every person’s situation is unique. We’ve created a process that’s dedicated to helping you, as a federal employee, worry less about money and benefits.

As federal benefits are often confusing and difficult to interpret, we aim to educate you so you’ll know the financial impact of retirement and benefit decisions. Please call our office at 913-593-0176 or email kyle@mokanfedfinancial.com.

About Kyle

Kyle Hammerschmidt is the founder of MoKan Fed Financial and an independent financial advisor specializing in providing retirement and income planning to state and federal employees. As a financial advisor, he understands that every person’s situation is unique and that there is no “one-­size-­fits-­all” approach to retirement and income planning. To address this, he has created a process that is specifically dedicated to helping federal employees worry less about money and benefits and more on their passions in life. Through extensive training, Kyle is well versed in the particulars of the various federal benefit programs, and helps federal families to make the most of those benefits—both while working and in retirement. He is committed to being the go-­to resource for those pursuing well-­rounded, customized advice. Learn more about Kyle by connecting with him on LinkedIn or emailing kyle@mokanfedfinancial.com.

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